Google ended up walking away from the deal because a legal war with Skype's founders over its underlying technology could leave the company "vulnerable to immense damages," the New York Times' Brad Stone and Clair Cain Miller report. Google was also reportedly worried that owning Skype could alienate its relationship with wireless carriers, who are increasingly rolling out phones based on Google's Android operating system.

They're right about that: Carriers, which still get the majority of their revenue from selling bundles of calling minutes, are still very nervous about Skype. For example, AT&T has blocked Skype and other Internet phone services from Apple's iPhone, except over wi-fi connections.

But it's also a sign that Google thinks that mobile advertising -- the way it eventually plans to make money from Android customers -- will be a much bigger market than the Internet phone market, which Google also dabbles in via its Google Voice service.

(On the other hand, it also tells us that Google -- which has shut down a lot of unsuccessful ancillary businesses since the recession started, such as offline advertising units -- still contemplates bold side bets, like moving much deeper into the telecom business.)

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